The Minimum Wage Increase: A Missed Opportunity

Damian from Brighton writes:

The increase in the minimum wage will, of course, be welcomed by the 3.5 million people who receive it from next April. However, when you look at how much the rate has been increased since its introduction in 1999, things look less rosy. 

The minimum wage began from the very low base of £3.60 an hour. It would be reasonable to assume it was set at that level out of caution, in order to ensure the success of the policy, so was initially lower than perhaps was necessary or accurate.

Since 1999, the annual increases have not kept pace with inflation or productivity increases. In plain English, workers in the UK have been, and are being, underpaid. The minimum wage is one of the most effective tools to reduce poverty and inequality. Increasing it not only helps people on lower incomes, it also causes an uplift in wages for people on higher salaries. Recent studies from the US have found that increasing the minimum wage also creates jobs. This makes perfect sense when you think about it, if more people have more money to spend, businesses will require extra workers to serve those additional customers.

Despite having this valuable tool at their disposal, both the Conservative and New Labour parties did not fully utilise it when in government, instead choosing to make small incremental increases, despite the policy being a success. If I were being charitable, I would describe the annual increases in the minimum wage since 1999 as miserly (see graph above).

So, after 14 long years of Tory austerity and wage stagnation, how much did Rachel Reeves, a Labour chancellor, decide to increase it by? The answer is 77 pence per hour. You cannot buy a packet of crisps for 77p. More importantly, such a small increase will go no way towards correcting wage levels or compensating workers for the accumulated loss of wages they have suffered as a result of being underpaid since 1999. Rachel Reeves may think she is being generous but 77p is not even generous in the context of the miserly increases workers have received for decades. It is certainly not enough to give the economy a boost and reveals the chancellor lacks ambition.

The government talks a lot about economic growth but its actions are not matching its words. To achieve real growth, the rate should have been increased to at least £12.50 an hour, with a promise to increase it to £15 an hour before the end of this parliament. The reason for increasing it to that amount is not only to pay people more fairly and give them more money, it is also to give them more hope. That is one of the main problems with Keir Starmer’s government, there is no hope. With Starmer, the light at the end of the tunnel is probably a train.